2013 Will Be Make Or Break For SaaS – Analyst

Software as a service (SaaS) sounds good, but the sums don’t add up, says Anthony Miller

This year, 2013, will be make or break for many things, but perhaps you haven’t heard that one of the things that could crash and burn this year is the business model which most people seem to believe is the best hope for the future. According to Anthony Miller of TechMarketView, this year could spell doom for – the cloud.

The man is obviously trying to wind people up, but he made a strong case, and he made it on an impressive platform. He had one of the keynote slots at the annual conference of Intellect, the organisation which represents Britain’s technology industry. The event was sponsored by Cobalt Corporate Finance, and chaired by the BBC’s political editor Nick Robinson. Miller had the stage all to himself, right after Boris Johnson’s economic advisor, Gerard Lyons.

So if Miller says the cloud could evaporate this year, we had probably better pay some attention. And while he is on stage, he threw out some other predictions including a suggestion that technology isn’t the saviour of the UK, and laptops are not dead.

Will cloud evaporate?

First off, when he slates the cloud he’s not talking about all manifestations of it. He’s not talking about the lower layers, platform as a service (PaaS) or infrastructure as a service (IaaS). He is talking about the higher layers of the cloud, which a meteorologist might call “cirrus” but which we refer to as software as a service (SaaS).

He thinks that vendors who take an existing on-premises model, and willingly risk it by pushing into SaaS, may not be doing the most sensible thing.

What is his problem with SaaS? “The clue is in the word ‘service’,” he told the Intellect conference. It costs more to deliver software as a service than it costs to deliver software on a disk, because users need looking after and you need a site and bandwidth. And yet SaaS software is cheaper than the on-premises version.

SaaS is great, because it is more flexible. It allows users to buy as much or as little software as they want. But why should this cost less? “Flexibility should come at a premium, not a discount,” he said.

The iconic SaaS firm, Salesforce, made a loss and – as Miller said – “waxed lyrical about their lack of profit”. And he doesn’t see that situation improving.

What’s the alternative?

You have to ask what else he thinks software companies should be doing, of course. SaaS is a market where margins are tiny and early entrants are having a rough time of it, but the model seems to be undoubtedly taking business away from on-premises offerings.

Maybe if a company is lucky enough to have an on-premises business, like a SAP or an Oracle, it should think twice before it joins the crowd of barbarians ripping it apart. It might make more money if it nursed the on-premises software through its declining years, and eventually left the market to the newcomers.

Alongside his grim forecast for SaaS, Miller had some things to say about Apple, BlackBerry, and laptops, and he also pointed out, somewhat grimly, that the tech sector, which is held by some to be the saviour of the UK, is actually growing slower than the overall economy.

IT is in decline

“We are in our sixth consecutive year of market decline – and the IT market will continue to grow more slowly than gross domestic product (GDP) till the end of the decade, and probably indefinitely,” he predicted.

The only sector where he let himself be positive was mobile: “Mobile is breaking the mould: it’s the biggest disruptive force we have ever seen in the technology sector.” He said there could be 11 billion Internet connected smartphones by 2020.

Even that is not all good news. “This will make princes of some companies and paupers of others.”

His roll-call of technologies that might not survive is a big one, including Windows 8 and BlackBerry. He also asked, “is someone going to put HP out of its misery?”

And even Apple, whose lack of innovation is starting to jar, should pull its socks up: “They need another game-changer.”

Miller’s talk is a bracing experience – and the whole conference is am eye-opener. The tech field looks a very different place when viewed from the financial perspective.

SaaS has tremendous value to the end-user, and because of that, SaaS will not die off in 2013 — the end-user will be the driving force that keeps SaaS alive. It’s the vendors that will die off if they don’t adapt. I do agree that it can be difficult for on-premise vendors to move to a SaaS model. But that doesn’t mean it isn’t worth trying. As long as vendors are willing to adapt, there will be SaaS. In fact, not trying is the worst thing that a vendor can do. If they just want to bow out of the competition without attempting to adopt to new technology in order to remain relevant, then they should’ve stepped out of the game a long time ago.

It’s true that SaaS is generally cheaper than on-premise software. But why can’t it be sold at a premium? Even if it is, the overall costs for the customer will still be lower than on-premise when you factor in infrastructure, management time, and staff allocation.